MediaTek stock plummets as investors turn bearish

PUSHING THE LIMIT Although the handset chip designer reported record-high earnings for the third quarter, a predicted Q4 revenue drop disappointed analysts

By Lisa Wang / STAFF REPORTER

The stock price of the nation's top handset chip designer, MediaTek Inc (聯發科), dropped close to the daily limit of 7 percent yesterday as most investors turned bearish about the stock following a disappointing outlook for the current quarter.

MediaTek shares slid 6.91 percent, or NT$44, to end at NT$593, compared with the main bourse's 3.39 percent loss.

Foreign investors sold 1.92 million MediaTek shares yesterday after purchasing 0.9 million shares on Thursday. The chip designer on Tuesday reported record-high earnings for the third quarter.

"MediaTek issued a poor outlook into the fourth quarter," Merrill Lynch analyst Jonah Cheng (程正樺) said in a report released yesterday.

Cheng downgraded MediaTek to "sell" from "buy" and trimmed his earnings forecast for MediaTek next year by 16 percent to NT$38.2 per share amid growing concern about price pressure on the company's core handset chip business.

He also cut his forecast for this year by 2 percent.

"We recommend that investors take profit and wait for a better re-entry point as MediaTek's price-to-earnings ratio approaches its peak," Cheng said, adding that he was positive about the company's long-term growth momentum.

MediaTek said on Thursday that the fourth-quarter revenue may decline by 10 percent to 12 percent quarter-on-quarter, compared with Cheng's forecast of 10 percent growth and the consensus of an increase of 5 percent to 10 percent.

MediaTek also disappointed analysts by predicting a decline of 1 percent to 2 percent in its gross margin, while most analysts expect the company's gross margin to remain steady, Cheng said.

He said he did not expect price pressure to let up in the near term.

Cheng said the average selling price of MediaTek's handset chips could drop by 15 percent this quarter from last quarter as its rivals such as Infineon Technologies AG aggressively push ultra-low-cost phone chips in China, where about 90 percent of MediaTek's phone chips are shipped.

Eric Chen (陳慧明), who tracks the semiconductor industry at BNP Paribas Securities' Taipei branch, was more optimistic than Cheng.

Chen said he still believed MediaTek would enjoy long-term growth, benefiting from its strength in the global "white-brand" handset market and China's third-generation (3G) market.

White brands refer to small, local brandnames in emerging markets.

Chen cut his MediaTek target price by more than 6 percent to NT$700 from a previous estimate of NT$750, but retained his "buy" rating. He also lowered his earnings projection for this year by 3.2 percent to NT$36.2 per share, and that for next year by 6.8 percent to NT$39.72 per share, reflecting the chip designer's worse-than-expected outlook.

Citigroup's Andrew Lu (陸行之), who has been more cautious than other analysts, held his "buy" rating on MediaTek steady, as well as his target price of NT$675 for the next 12 months.

"The shares may see some near-term weakness as the fourth-quarter consensus forecast may be reduced to our more realistic estimates," Lu said.

MediaTek's forecast revenue drop of 10 percent to 12 percent was slightly below his forecast of a 5 percent decrease, Lu said in a report dated Thursday.